COST ACCOUNTING
MANUFACTURING OVERHEAD
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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actual overhead is less than applied.
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actual overhead is greater than applied.
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the predetermined rate equals the actual rate.
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actual overhead equals applied overhead.
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Detailed explanation-1: -Answer and Explanation: If overhead applied is less than actual overhead incurred, it is: b. Underapplied. If actual overhead incurred during an accounting period is greater than the amount of overhead applied to a job, this means overhead was underapplied to that particular job.
Detailed explanation-2: -Underapplied overhead occurs when a business doesn’t budget enough for its overhead costs. This means the budgeted amount is less than the amount the business actually spends on its operations.
Detailed explanation-3: -Underapplied overhead is extremely important for accounting the balance sheet. Overhead in general doesn’t affect a business’ cash flow, but it does show as part of the net income. If the overhead is underapplied overhead, this can take away from the bottom line, or total income.
Detailed explanation-4: -If manufacturing overhead has a debit balance, the overhead is underapplied, and the resulting amount in cost of goods sold is understated. The adjusting entry is: If manufacturing overhead has a credit balance, the overhead is overapplied, and the resulting amount in cost of goods sold is overstated.